And how to avoid them…
Many entrepreneurs and small business owners starting out in business decide to handle their own accounting and bookkeeping to save costs.
At first it may seem like a good idea and the TV and press advertisements for cloud based accounting software give the appearance that doing your own accounts is super easy.
But, if you are thinking of doing your own accounts you need to be sure that your time is well spent and you have the skills.
For some people it can quickly become overwhelming and complicated. Mistakes are easy to make and can result in time wasted, stress and even penalties if you make a mistake with VAT and tax.
So, to help you avoid problems, we have highlighted some common mistakes that we, as professional accountants, see businesses owners make. Let’s have a look:
1. Lack of organisation
To stay on top of your bookkeeping, you need good organisation skills. You’ll need to record each of your transactions, calculate taxes if relevant, store your receipts (either digitally or physically) and do many more tasks in an organised manner.
Don’t be tempted to put everything aside to deal with when you are not so busy with your business. It will quickly become a big mountain to deal with and there is the risk of losing information. If you’re unable to track everything back you could have trouble during the tax season. So be disciplined and keep on top of everything regularly.
You will also need to keep abreast of the relevant rules and regulations that may affect your business.
You’ll need to know the deadlines for VAT submission, tax returns, self-assessments and anything else relevant. You’ll need to get these things sorted out on time.
2. Forgetting small transactions
We all know how easy it is to forget about the smallest expenses, such as grabbing a pack of printer paper on the way to the office or sending a small thank you gift to a client. However, in accounting, small numbers are just as significant as the large ones.
And it’s especially important to track the small expenses if you’ve paid for them personally.
Every transaction ought to be traceable and accurate so that the numbers properly match everywhere. You need to make sure that all purchases have receipts and are properly recorded, no matter the amount spent.
3. Keeping all of your financial data secure
Many business owners don’t take the necessary security measures to protect their financial data and usually keep all of it in a single file. Now, imagine if that file was suddenly lost or your information got hacked to or stolen – you would lose everything with no chance or restoring it.
This happens more often than you might think and most businesses are not prepared. Ideally, to minimise risk you should not only store your data in a secure place, but always back it up so that you have an extra copy of your information that is up-to-date at all times.
The security of your business should be your highest priority and not taking it seriously could be a costly mistake.
4. Not using accounting software
Although you can use a simple Excel spreadsheet for simple bookkeeping and accounting it’s notoriously the worst choice in terms of time and potential errors. A simple formula error can cause havoc…. as many big businesses and large accountants have found to their cost.
Accounting software will make things much easier for you. It will automate many of the processes, highlight possible errors, calculate everything correctly and provide you with clear financial information about your business. Good software used properly will save you time and money in the long-run.
It can also contribute to the security of storing your data. There are some great cloud-based softwares such as Xero, that will keep your accounting data secure together with images of all of your invoices and receipts. Truly paperless.
5. Failing to reconcile accounts
Frequently reconciling your books with your bank accounts is important. It means matching the transactions on your bank account with the transactions shown on your accounts.
If everything agrees the balance on your accounts should match the balance shown on your bank account. If you let some transactions go unrecorded, reconciling your accounts will help you spot the missing information. Ideally, you should do this regularly, at least every month to keep your accounts accurate.
6. Not setting clear budgets
Budgeting is extremely important for business management and not setting realistic budgets is one of the worst mistakes you can make. When you set your budget, be cautious. It’s better to underestimate how well you think you’ll do. Make sure your assumptions are realistic and build in a contingency allowance for the unexpected.
If you work on a project basis then every time you start a new project you should set out a clear budget of how much money you think you will spend over a given period of time and how much income you expect to make.
Setting a budget will help you to forecast your finances and understand your company’s financial health when you compare your actual results with your budget. Without a budget, it’s easy to overspend and not notice that your work is becoming less profitable than you thought.
Having set your budget you’ll need to monitor your actual figures and make sure you don’t fall behind. If you do, you may need to take quick action to get back onto budget.
7. Data entry errors
Making general data entry errors in your accounts is all too easy, especially if you’re trying to catch up at the end of a busy day. Even with the best small business accounting software, the old adage ‘rubbish in, rubbish out’ is true.
If you’re not a trained bookkeeper or accountant, you may struggle to find where the mistakes are. Trying to find the errors by double-checking each transaction could take hours or precious time (especially if you’re using Excel for your accounts).
A trained bookkeeper or accountant will have the skills and resources to efficiently check accounts for errors and the knowledge of how to correct them.
But if you are intent on doing your own bookkeeping, take time to learn how to use good bookkeeping software and take care with the entries.
Final word
Accounting and bookkeeping is not as easy as you might think. Bookkeepers and accountants have studied many years to gain qualifications and continue to study as part of their professional development.
This is why many growing businesses outsource accounting to professionals with the skills and ability to provide an efficient managed service.
Article by asfo
